Biggest South African Bank raises alarm on Loan-to-Grant proposal

Standard Bank Group Ltd. has raised the alarm around proposals to revive a faltering government-backed credit program designed to aid South African businesses battered by COVID-19.

While South Africa’s largest lender is open to talks on how to restructure the 200 billion-rand ($13.6 billion) program to drive up demand, it rejects suggestions to swap into grants the loans that have been provided, Chief Executive Officer Sim Tshabalala said in the bank’s annual report.

“Apart from the unfair burden that a conversion to grants would place on our depositors and investors, and on taxpayers, we think that converting loans into grants would set a very undesirable precedent,” he said.

President Cyril Ramaphosa has criticized the nation’s biggest banks for failing to speedily disburse credit under the initiative started in May. The Banking Association of South Africa has said that total allocations were unlikely to reach 10% of the program’s capacity.

The program is due to expire on April 11. A review by the banking association found many business owners had opted for relief arrangements with their individual banks over loans from the program.

If the decision is to forgo payment of loans already issued, the cost “would be too high at a time when South Africa is under extreme fiscal stress,” according to Tshabalala. The nation meanwhile needs its resources to pay for vaccines and other medical supplies, he said.

Relief Plan

Ramaphosa’s administration last year unveiled a 500 billion-rand support package by re-prioritizing spending from existing budgets. Banks were roped in to distribute loans guaranteed by the government to small- to medium-sized businesses, starting with 100 billion rand of disbursements before doubling up.

The National Treasury didn’t immediately respond to questions around the future of the program after April 11. The South African Reserve Bank referred queries to the National Treasury.

While there was disappointment around how the program has fallen short of its capacity, efforts by banks could only go so far in counteracting the effects of the country’s deepest economic contraction in a century, Tshabalala said.

“Good business people are never keen to take up a loan unless they are confident about their capacity to use the funds productively and about their ability to repay the loan,” he said.

South Africa’s preliminary tax collection exceeded its budget estimate for the first time in five years as President Cyril Ramaphosa’s efforts to rebuild a revenue agency hollowed out under his predecessor’s rule start paying dividends.

The South African Revenue Service collected 1.25 trillion rand ($85.3 billion) in tax income in the fiscal year through March 31, Commissioner Edward Kieswetter told reporters Thursday in Pretoria, the capital.

That’s 38 billion rand more than the revised estimate in the February budget which the government cut by more than 213 billion rand from its original projection because of the impact of the coronavirus pandemic on Africa’s most-industrialized economy.

The better outcome means the budget deficit as a percentage of gross domestic product for the past fiscal year could be less than the Treasury’s projection of 14%. Still, it would be the largest gap since 1914, when the shortfall was 11.6% of GDP.

Personal income taxes overshot the revised budget estimate by 0.9%, while corporate income duties were 6.5% higher than forecast, Kieswetter said. Revenue from companies and workers was affected by the closing of struggling businesses, an increase in the jobless rate and pay cuts imposed on staff by cash-strapped firms.

While tax revenue for the fiscal year that started on Thursday is expected to reach almost 1.4 trillion rand as the economy reopens, the slow rollout of coronavirus vaccines, an expected third wave of infections that could trigger stricter lockdown measures and electricity shortages remain risks to the outlook.

The government in February withdrew planned tax increases of 40 billion rand over four years to support the economy and provided relief to households by approving above-inflation increases in personal-income tax brackets and rebates.

Efforts to rebuild the tax agency started with Kieswetter’s appointment in May 2019. It has since re-established a unit to handle the tax affairs of large businesses and a recent increase in its budget will allow it to follow through on plans to set up a division that’ll focus on the complex financial arrangements of high-net worth individuals and fill critical vacancies.